This article first appeared in Corporate, The Edge Malaysia Weekly, on July 18 - 24, 2016.

SLIGHTLY over a month ago, the Ministry of International Trade and Industry (Miti) launched two safeguard investigations, one on steel wire rods (SWR) and another on steel reinforcing bars (rebar).

If the investigations are successful and the safeguards are implemented, it would be hugely beneficial to the petitioners of the investigation — Ann Joo Resources Bhd, Kinsteel Bhd, Southern Steel Bhd, Malaysian Steel Works (KL) Bhd, and Antara Steel Mills Sdn Bhd, a member of the Lion Group.

However, the Steel Wire Association of Malaysia (SWAM) and several Chinese steel importers are challenging the grounds for the investigations. According to documents sighted by The Edge, several written submissions were filed with Miti last week.

“We believe that there is insufficient grounds for these safeguard measures to be implemented,” says Jason Teoh, of Jason Teoh & Partners, which is representing SWAM in the written submissions on SWR.

Teoh points out that the government is already applying 5% import duties as well as anti-dumping duties where necessary on the said steel products.

“Safeguards are about protecting the local industry. But unlike anti-dumping duties, the main focus is not price. Safeguard actions focus on import volumes,” explains Teoh.

Safeguards should not be implemented lightly, since they can provoke retaliatory action by exporting countries.

Note, that safeguards are non-discriminatory actions that affect all imports from all countries, not only China.

Teoh explains that three conditions need to be met for safeguards to be implemented. First, there needs to be an unforeseen surge in import volumes. Second, the relevant producers of the product need to demonstrate serious injury. Third, causation between the two must be established.

Teoh argues in his written submission that these conditions have not been met.

On top of that, he argues, “For all their complaints on the surge of imported SWR, it is mala fide and extremely mischievous of the petitioners to fail to mention in their petition — that not only did the petitioning companies themselves import SWR during the period under investigation, they also encouraged the domestic industry to import SWR through them.”

In this case, the petitioners refer to Ann Joo Steel Bhd (a subsidiary of Ann Joo), Southern Steel Rod Sdn Bhd (a subsidiary of Southern Steel) and Amsteel Mills Sdn Bhd and Perfect Channel Sdn Bhd (subsidiaries of Kinsteel), which filed their petitions via the Malaysian Steel Association.

“The petitioners chose data that misrepresents the actual fact. The fact is, import volume of SWR has since fallen sharply. If import volumes have fallen, how can you apply for safeguards?” poses Teoh.

The petitioners, however, focused on 3Q2015 when import volumes were particularly high, insisting that the volumes caused them serious injury in the form of losses.

An example is Ann Joo, which last year booked a net loss of RM135.48 million. However, Teoh points out that in the first quarter this year, the company posted a profit of RM5.52 million.

“SWR is crucial for the construction industry. It is used to produce things like nuts, bolts and screws as well as other construction materials. In fact, the petitioners are seeking safeguards for a wide variety of SWR, many that they are not even producing themselves. If the safeguard is implemented, it would hurt downstream players like the construction industry,” adds Teoh, pointing out the large number of infrastructure projects in the pipeline.

On the other side, Ann Joo’s managing director Datuk Lim Hong Thye has previously argued that the safeguards are necessary. High availability of Chinese steel has caused the steel industry to regress, he claims.

Furthermore, he asserts that the subsequent reliance on Chinese steel leaves Malaysians vulnerable to predatory behaviour. For example, when Chinese export orders were cancelled in March and April following a curb on production, it “sent China’s domestic steel prices up by 54% to 3,150 yuan (RM1,932) per tonne on April 26, from just 2,042 yuan per tonne on Jan 4, 2016”.

Meanwhile, the written submission for rebar, which were submitted for China-based steel exporters, are similar to the SWR submissions, with one major exception. Based on the written submission, there appears to be a shortage of rebar in the country. Rebar is crucial for the construction industry.

In fact, the submission point out that the government even reduced the import duties on rebar in 2008 and 2009 to ensure that there was sufficient local supply. Note that a 5% import duty was reintroduced in June last year.

However, the submission asserts that less than nine months later, in March 2016, the country was once again faced with a shortage.

“Keep in mind, we’re talking about fairly priced goods here. Since the anti-dumping measures have been taken by the government, these goods should be fairly priced. On top of that, they have a 5% import duty,” explains Teoh.

As with previous industrial disputes in the steel industry, it appears that the government will have to choose between protecting the upstream players or the downstream players. However, note that the safeguard measures involve the application of World Trade Organization law, not Malaysian law.

While the local steel players would benefit greatly from the safeguards, the costs could be very high as well, especially if the government has to pay compensation. 

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